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next on "this week in defense news," an exclusive interview with the pentagon comptroller bob hale

welcome to "this week in defense news," i'm vago muradian. earlier this month the obama administration submitted to congress its 2013 defense spending request that includes $525 billion for the base budget and an additional $88 billion to fund operations in afghanistan and elsewhere. highlights include cutting more than 100,000 troops, cutting the global hawk -- unmanned reconnaissance aircraft and the c27j transport, delaying a new submarine and paring back on other procurement efforts. the administration argues its way is the best way to cut defense spending by $480 billion as passed by the budget control act by congress last year.

the reaction from house republicans has been blistering, jeopardizing national security. here to talk about the defense budget is the man who played an instrumental role in putting it all together, bob hale, the undersecretary of defense, comptroller, sir, welcome back to the show. >> thank you for the chance to be here. >> so let's start out, when your budget was unveiled, d.o.d. leaders stressed that they wanted to work with the congress in order to get what what they considered to be a balanced plan through without unraffling it because it's sort of a swiss watch in many cases is the argument that was made. however, republican house members have blasted the plan despite your plea. how do you convince lawmakers that this is the right budget, that it won't jeopardize national security at the end of the day and what really happens if they do change it and tinker it? >> vago, let me start with saying we say the budget control act required or to be consistent with it, we had to make some major changes, as you mentioned, $487 billion over 10 years. but the most important thing is we did that based on a strategy. we didn't make across-the-board

strategy. the president actually unveiled that january 5th at the pentagon and all the major budget decisions were based on that strategy or on management issues. so i think we have a story to tell, and we have secretary panetta, chairman dempsey have made that point in hearings so far. i think the congress understands this is a budget that responds to the fiscal needs of the nation, but is based on a strategy that minimizes the added risks that we're having to take. and i wouldn't say so. i understand their concerns and there have been suggestions that we've got problems, but i think we're making headway and i'm reasonably confident that congress will approve the great majority of this budget, at least i certainly hope so. >> what do you think are the hard spots that might require a little more work on your part? there's a lot of concerns about the base realignment and proposal closures. we asked for two rounds of iraq in 2013 and 2015.

this is painful politically. secretary panetta has been through this during his days in the house. so i think he knows that. on the other hand, it is the only effective way to consolidate infrastructure and we believe we need to do that. so clearly iraq is of concern. there's concern about the amount of risk in this budget. we go back to our strategy, we understand we're taking some risk. we can't take this half trillion dollars out of a budget plan and not take some more risk. but we think we've done it based on a strategy that tries to look forward to the future and minimize that risk. so like i say, i'm hopeful that we will see the congress act on this as a package at least within reason. >> when you unrolled the package, you said, look, there were a whole bunch of things you wouldn't rather do, like salami slicer canceled programs, obviously the slower the rate, the higher the unit cost and also termination penalties. everybody knows that doing that is problematic, you admitted that doing that was problematic. how much is it going to cost in terms of program delays, termination costs and do you

have enough money in your budget in order to cover those added cost? >> on the termination delays, generally if the contract specifies that we budget to it, so the money will be there, and in some cases it would depend on the weapons system, we may not pick up an option that we would have otherwise picked up, that might not add to costs. your general point is well taken, when you slow weapons, you're going to add to the unit cost. we'll do this in a way that minimizes that wherever we can, but some of it is just inevitable. we are reacting to the fiscal problems in the country and trying to be fiscally responsible as well as providing strong national defense. >> there are two program -- the program cancellations which we mentioned at the top of the show, the hawk global and the c20j that were launched during the last administration. they were considered important programs, they're now both being tailed out after not an insignificant number being built, 18 and 21 airplanes. how do you keep from making decisions like this in the

future that you're buying something that ultimately ends up being a luxury that you have to cancel? >> well, it would help if the world didn't change. the world changed in several respects, one, obviously the fiscal limits placed on the department and that was particularly important, well, in both of those programs, frankly. second, in the case of global hawk block 30, its costs grew so much that it was no longer a cost-effective replacement for the u2 and so we're going to extend the u2. in the case of the c27, we have enough c130s to do most of that mission. it's a single mission, the c27, a sitionle-mission aircraft. in tight fiscal times we just judged we couldn't afford to do that. so if the world changes in the way it did, we'll probably have to make some more of those decisions in the future, but i'm hoping we're entering a more stable period fiscally for the department. >> let me take you to the shift in accounting standards. there is a shift in accounting standards from financial to cost cutting and it's going to increase the amount of cost contractors can pass on to you

for pension expenses and the like. how much is that going to cost and have you fully budgeted for the impact on each and every single program when contractors start to make that change? >> no, i don't think we budgeted for it. one of the things we got from the budget is fiscal '14 and we'll have to start budgeting for it. my hope is, and this is the comptroller speaking, there will be limited added costs. the added pension costs are dependent to some extent on how well a company's investments fare, things are doing a little better in the stock market, hopefully that will hold that down. i'm hoping our vendors realize i'm hoping our vendors realize in y>cay[ q they need to work with us to hold down weapons costs. so we think there may be modest added costs, we'll just have to see. but we are going to have to start budgeting for them and it's a question i'm asking internally as we look into our next budget plan. >> it could be a significant cost. >> it could be, yes. i hope not, but i'm not sure. it's kind of uncertain,

frankly, it varies by company as to how well funded their pension plan is so there's not an across-the-board way to answer your question. but, yes, it could, it could be billions of dollars conceivably. >> let me take you to the rounds -- base closure rounds you talk about. there are those who say the administration by not budgeting for at least even one background up front isn't really serious about closing unnecessary installations. do we know how much a new background would cost and how much it would project the savings in order to better make the case of why it's necessary? we don't have that detail yet. part of the reason we didn't do it was time. i mean, we did a lot of stuff over the last few months to this budget plan. we didn't have time. second, i mean, we need to be sure that the united states congress is going to give us this authority and i think as i mentioned at the outset, that's an area that is still in debate. if they do, we will move quickly to budget for it. we've already begun some of the initial planning. we are serious, it's the only good way to consolidate our infrastructure and we know we

need to do it. the last background cost more than we hoped i think partly because we were moving around the ps. this round would probably be somewhat different. i think there'll be more closures and that's where the bigger savings occur. and i'd say in general about brac, even though they're costly up front, they do save money. i think this last round will probably save us $400 billion and those will occur in perpetuity and that's a lot of money. in the end they will and we hope the country will provide it to st a moment. you're watching "this week in

we are he a back with bob hale, the pentagon comptroller. sir, in your budget request, you claim there's going to be another $60 billion in savings from efficiencies on top of the $150 billion you guys have worked over the past two years. how much of the money that has been claimed to be saved already has actually been saved? what amount are we talking about there? and what happens if the full $60 billion doesn't materialize, how do you plug that gap? >> well, $150 billion from last year was over fiscal '12 to '16. most of it has not been saved. i do think we have specific plans now, we have people in charge, we have targets, we have a governance structure, so i think we are moving toward saving most of it. there are some high-risk areas. we placed a cap on our civilian personnel and we're also trying to cut back on contractors where it's cost effective and

right to do so. i wouldn't say it's all in the bag, but i believe we are moving in the right direction with the $150. the $60 billion is for fiscal '13 to '17, those are still plans and commitments in most cases. we need to do the same thing for them that we've done over the last year. they've got to get specific, people have to be assigned more specific targets, that hasn't happened, but it will. i think we understand -- the words we like to use are the more disciplined use of resources. that money is gone. we simply have to find a way to achieve more disciplined use of resources or we're going to have to cut back on programs and we don't want to do that. >> let me take you to the question of sequestration which my friends at the pentagon blames you and says bob stops us thinking about sequestration every time we want to think about that. it is the law of the land, it is going to happen, it is a bust approaching the department. at what point do you seriously need to consider readying for this? isn't it more responsible to plan for it and have it not happen than not having planned for it at all? >> well, vago, i take exception

to whether it's going to happen. i think it won't. in the end i believe we will find a way to avoid sequestration. what we need congress to do right now is enact a balanced package of deficit reduction that's large, that puts everything on the table, something the president could sign and then pass a law in which i think at that point the president would sign to halt sequestration. the reason we're not planning is we're hoping they do that. i wouldn't want to say it's a sure thing by any means, but we are hoping, and i think there's bipartisan agreement we don't want sequestration. so, yes, at some point we will have to plan for sequestration and we will, we'll follow on the guidance there. this needs to be a government- wide decision. it affects all the agencies, not just defense. but for the moment i think we want to give the congress time to do its job and to pass a far- reaching change that halts sequestration. >> but if it goes through and it does have to happen, you guys are going to have to come up with the money. >> absolutely.

we will have to plan for it at that point and make it happen. it doesn't go into effect until january 2nd of 2013. you know, we're 10 months off from that, so it isn't next month that this is going to happen. again, i want to give congress time to do its thing and to make changes in the deficit. >> let me take you to -- you mentioned omb. every budget cycle is give and take, obviously, between the white house and the pentagon at the end of the day and we're told by numerous foablgs that, for example, the pentagon -- the the white house did get involved, told the navy you guys have to keep one more carrier. there was a cost issue. it was a military pay increase that had to be covered at the end of the day. how much of this budget is your budget and how much of the rkr$gon÷"e#oh the white house in every budget session. we do what's called a concurrent review. it's unusual in government, but they actually have people

sitting in on our fall review, the office of management and budget staff, we brief the national security staff. this year was probably more far reaching because the changes were more far reaching. i'm not going to discuss the specifics of the predecision issues that were considered, but i can tell you the white house is always and should be, it's the president's budget that we're submitting, they should be involved and they were, and i think it was very constructive. the president was personally involved in this budget, especially the formulation of the strategy came to the pentagon on january 5th to release it which we really appreciated. >> told you should be nice. told us to be nice. so we appreciate it. i think the involvement was more because of the nature of the options but not unusual and they're always involved and they should be. >> let me take you to a request about when the budget was rolled out, everybody went to great pains to say the pain is going to be evenly divided and by all accounts the pain was evenly divided. the administration made it a point of saying that even within the strategy, the

defensive industrial base is part of the national defensive infrastructure. within this budget how many decisions were made that were constructed by industrial-based considerations. >> let me go back to the pain being widely shared. the goal of this budget was to follow from the strategy and the strategy wasn't across the board. i mean, we made a conscious decision to, for example, cut back on ground forces a good deal more than other forces because it was consistent with the strategies. so we really didn't try to share the pain, we tried to be consistent with the strategy. on industrial base, our goal here is to keep the skills we think we will need in the future, not necessarily particular companies. as we're reviewing issues like ship building, as we're reviewing issues like a next generation bomber, yes, i think we were thinking what skills and how do we maintain them. we tried not to say which particular companies should do it, that to be more determined by the competitive process. >> space as well. >> space as well where we were consciously looking to be more

efficient of all the acquisitions, space initiative, we are were trying to be more efficient. >> how do you respond to critics, though, who say, you know, you guys talked up r and d investment, but you actually cut it back from 3.8 to 3.1%, however you look at it. >> i submit the budget act, we took a lot out of procurement as well, we took some out of military personnel, we took some out of all. it's built up through literally hundreds of small projects that go through a rigorous review of the services and the major ones in the office of the secretary of defense. when we add up this budget, it is about 13% of the budget plan, pretty much where it was in fiscal 2000, a bit more at the height than, say, 1985, the height of the reagan period. i think it's a reasonable rdt and e budget. it wasn't built on shares, but i think the shares suggest it's a reasonable plan. up next we talk

welcome back for more of our conversation with bob hale, the pentagon's comptroller. sir, the administration's budget contains a proposed increase for retirement healthcare as well as reducing the rate of military pay increases that are going into the future. critics are blasting both of them as a betrayal of force that's been at war for the past decade. why are these fee increases necessary and if you don't increase them, what are some of the other alternatives you're going to have to look at? >> i think we had to put everything on the table when we were taking these kinds of cuts out of defense and we want today do it in a way that's consistent with our strategy. had we chosen not to look at military pay and benefits which is about 1/3 of our budget, we would have been forced into overly large cuts in modernization and infrastructure. i think it was agreed by our senior civilian leaders and notably by our other leaders. we did need to look at military pay and wents. we tried to do it with guiding

principles in mind, one of which no one's pay gets cut. we may slow it, but there are no pay freezes, no pay cuts, and try to give time in the case of the pay raises for people to plan, but to ignore it would have led, again, to overly larged cuts forestructure and modernization. >> there is a new retirement form commission that's been impaneled. what can you tell us about it and how much money do you hope they'll end up saving? >> it hasn't been impaneled. we're asking for legal authority to set it up. >> excuse me. that's right. >> it will be the military modernization commission. it will function if congress dwrees with us under -- agrees with us under the brac light conditions, the president then to the congress, if he chose to do so and the congress would have to vote up and down without amendment. i don't have a target for savings. what we want this commission to do is to take the time to look carefully at military retirement in the context of overall compensation and to try to come up with cost-effective

schaings, if there are -- changes, if there are any. we're not saying you absolutely must find changes. if there are, then we'd obviously be interested in them and we hope they'll recommend them and congress will consider them. >> you've been around to see numerous proposals that look at both retired pay rises or even military pay and benefits and all that stuff die very, very quiet deaths. is this the time, is the political time ripe to try to tackle some of these reforms? >> i think it may be. there have been nine studies, i believe, since the '40s of military retirement and, yes, there have been some changes, but no major ones. obviously the country is facing some difficult financial circumstances, we're making some changes in strategy. i think if the congress were willing to let this commission operate under these brac-like provisions, we'd have more of a chance of seeing actual rulgts

out of the commission. i want to emphasize two things, one, there's no targets here. one, there's no targets here. we want to look l should be fully grandfathered, by that they would only apply to new recruits coming in. very important revision. >> absent reform, you're going to be in trouble in another decade. >> it will be harder. we'll have to make bigger cuts in other areas, whether it's forces or modernization and at least given the strategy we face right now, i think that would be a challenge. >> one of the -- i don't want to go without asking you whether or not you're going to be the first comptroller who is going to have fully auditable books. the pentagon has been working on this, this has been a priority for you as well. at what point is the department of defense going to come into the 21st century in terms of accountability or audittability? >> the legal goal is to have audit-ready statements by 2017 and secretary panetta said you gotta speed it up for the key statements, the budget of

resources which is our statement by 2014 to be audit ready. i'm reasonably kf bent we'll make those. -- confident we'll make those. we've overpromised and underdeliverred on this topic, so i want to be humble and careful. but i'm reasonably confident. i have to say, vago, since my wife is listening, i don't think i'll be the comptroller in 2017, so somebody else is going to have to finish this job. >> let me take you in the last 30 or so seconds we have left as to whether or not the right culture exists for accountability within the department. congressman kauffman is looking at making accountability at all ranks. is the sulture of accountability growing in the pentagon or what has to be done? >> in my experience, financial accountability is stronger when you face difficult budgetary times. we clearly do. i think people are paying a good deal of attention right now. there are also equally probably more concerned and should be in accomplishing the mission, so there's a balance to be struck here, but i believe the

pentagon will improve its financial accountability. >> sir, thanks very much. coming up

among the many program changes in the obama administration's 2013 defense budget request, two stand out as wasteful, the cancellations of the block 30 global hawk, unmanned reconnaissance aircraft and the c-27j transport plane. only the pentagon would spend $4.6 billion on new systems and decide they weren't needed after all. clearly tough choices were needed to cut $487 billion over the coming decade, but retiring such new aircraft without using them is ridiculous. the block 30 global hawk cost $3.4 billion, but its sensor package wasn't good enough to replace the manned u2 which flies higher and gathers

reconnaissance. that global hawk can't miss the u-2 misses the point. it carries multiple extensors and stays there longer, complementing a u2 fleet. the c27j was intended to get vehicles off i.e. d.-laced supply routes, but only 121 of 145 planned planes will be bought and most will retire before ever flying a mission. if these planes were mere luxuries, they shouldn't have gotten this far, costing $4.6 billion that could have funded other priorities like nuclear attack submarines or developing a new bomber. for too long d.o.d. as compensated for poor aforethought without spending money. those days are over. d.o.d. must stop pouring money into systems it will never use. thanks for joining us. you can watch this program on "this week in defense news" or you can e-mail me at vago@defensenewstv.com. i'll see you next week at the same time. until then, have a great week.